Posted under Consumer Proposal
This past Saturday, Ted Michalos and I spent an hour on the Ask the Expert show on 570 News in Kitchener-Waterloo answering questions regarding consumer proposals. At Hoyes, Michalos & Associates Inc., Trustees in Bankruptcy, we currently file about 1 consumer proposal for every 2 bankruptcies. But what surprises us, is that a consumer proposal is an option that most people have not heard of, even though they have been around for over 15 years.
The Bankruptcy and Insolvency Act provides two options – bankruptcies and proposals and therefore, a consumer proposal provides the same protection from creditors as a personal bankruptcy. A consumer proposal is a consolidation of an individual’s debts into one monthly payment to all of the unsecured creditors (ie not including mortgages or car loans). A consumer proposal is presented to the creditors generally, but the voting is based on one vote for every dollar of debts. If the majority of creditors accept the consumer proposal, then in it is a locked-in deal. The creditors have 45 days to vote and if they choose not to accept the proposal as filed, they tend to provide a counter offer that they would accept. At that point, the debtor has the option of accepting this counter offer.
Some further details with respect to consumer proposals:
- A consumer proposal is filed by someone who is unable to deal with their debt load;
- The fundamental concept of a consumer proposal is that it must provide for more than what would be realized in a personal bankruptcy;
- A consumer proposal is for situations where the non-mortgage debt is less than $75,000 (or $150,000 if consumer proposal is filed jointly for 2 people with common debts);
- A Consumer proposal can be made for a lump-sum amount or consist of a payment plan for up to 60 months;
- A consumer proposal stays on the debtor’s credit rating for 3 years after the proposal is paid off;
For example, let’s consider a consumer proposal that I helped a couple file last week in our Kitchener office. The family of 4 makes $4,500/month – take home pay. They own a home in Kitchener, with $10,000 of equity. They have 73,000 of combined credit card and line of credit debt. They have 2 vehicles, one that is leased and one that is financed – both which they want to keep. Most of their debts accumulated over the past several years while they fixed up the house that they had purchased as well as reduced family income during the periods following the birth of their two children. The wife is now working full time but as a result, has an increase in child care costs. The final part that has made their situation increasingly more difficult is that the husband has lost his overtime income due to cut backs at work. This overtime money was paying the debt load in the past.
We filed a consumer proposal to the creditors offering $450/month for 60 months = $27,000. This consumer proposal allows the couple to pay part of the debt back, but more importantly gave them a plan to deal with the debts and maintain their house and cars with a balanced budget.
To discuss a consumer proposal in more detail call me at 519-747-0660 or 310-PLAN or e-mail me.
